I'm a Fellow at the Adam Smith Institute in London, a writer here and there on this and that and strangely, one of the global experts on the metal scandium, one of the rare earths. An odd thing to be but someone does have to be such and in this flavour of our universe I am. I have written for The Times, Daily Telegraph, Express, Independent, City AM, Wall Street Journal, Philadelphia Inquirer and online for the ASI, IEA, Social Affairs Unit, Spectator, The Guardian, The Register and Techcentralstation. I've also ghosted pieces for several UK politicians in many of the UK papers, including the Daily Sport.

Which Way Are Apple's Results Going To Go? One Tiny Technical Point To Watch

Apple reports its results on Wednesday and of course, given that it’s the largest company by capitalisation, analysts are all over it. And all over the place as well unfortunately. No one has a clear idea of what the results are going to be. Not even whether they’re going to beat past quarters or not. Sure, of course, we’ll all know on Wednesday but that’s not all that much use when everyone else gets the information at the same time. But there is one little thing to consider which could give a clue to the future. Something that might be in those results.

To give an idea of how varied the analytical approaches are, there’s this:

Apple shareholders could still be in for more rough times if technical strategists are right.

They note that trading charts show few price points where investors can expect clusters of buying to support Apple’s shares. For example, the stock’s medium-term momentum, based on its 50-day rate of acceleration, has been on a downward slope since March, but has not hit over-sold levels.

Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research, said it is hard to find an entry point at current levels, calling the stock “broken.”

“There’s been a lot of technical damage, but at the same time it still looks like it’s in a downtrend,” Detrick said. “This could still be a name you want to avoid and could very well still underperform in our opinion.”

I have to admit that I tend to think of such technical analysis as a load of horse puckey. There simply isn’t any good reason at all why past price movements should influence future in the manner this theory demands. The only possible reasoning is that while it is indeed horse puckey lots of people believe it. So it’s all about the beliefs of other investors, not anything intrinsic to markets or the stock itself. Whether it works or not thus depends on how many other people also believe it: not the strongest of investment strategies I would have thought.

Walter Piecyk, analyst at BTIG, is firmly in the latter camp. He downgraded Apple’s stock to neutral from buy last April – a move that looks like smart timing now. Piecyk predicts Apple will have another record setting quarter in sales for the company and close to an 80% increase in iPhone sales from the September period, when sales were hit by customers held off in anticipation of the new phone.

But it’s not this quarter’s sales that worry him. What worries Piecyk is Apple’s “compressed product cycle”. The company could once rely on growing sales for its hit products even after their hype-fueled launches. The Apple fever is still there – huge lines formed at Apple stores around the world for the iPhone 5 and the iPad Mini. But there are now worrying signs that Apple has lost the ability to build on the momentum of those launches.

And then working from exactly the same facts we get this:

Horace Dediu, an Asymco analyst, has roughly the same numbers as BTIG but he couldn’t disagree more. There are technical reasons that the quarter may underwhelm – this quarter is a week shorter than last year’s comparable quarter and the company had two launches to contend with – but fundamentally, he says, Apple remains a stellar performer with room to grow.

“The global appetite for devices is measure in billions of units,” he said. “The numbers of units Apple is shipping remain relatively small.”

He expects that Apple will launch a new series of iPhones aimed a more cost-conscious buyers.

Given that the experts cannot come up with a consistent line what hope is there for us mere mortals?

The one thing that we might be able to divine about the future though concerns this:

Investors are unusually nervous because of reports that Apple might be curtailing purchases of screens for its iPhone and iPad, which together account for over 70 percent of revenue.

Now we’ve seen that story around quite a bit. And there are two explanations on offer for it. The first is simply that expected demand is lower than what Apple thought it would be a few months back. They are thus curtailing future orders. This would obviously be bad news for the stock price.

The second is that while they are indeed curtailing orders, this isn’t about falling sales (or even sales not rising as fast as expected). Rather, it’s about rising yield on those parts.

Imagine it this way (with completely made up numbers). So, Apple orders 100 screens from Sharp. But 50% of them break in between delivery and the final production of an iPhone. Then Apple (or perhaps Foxconn) are able to sort out that breakage rate. So, 100 screens ordered becomes 100 completed iPhones. Clearly, if this is the case, you can cut your orders of screens by 50% and still be shipping the same number of iPhones you first thought of. We have been hearing stories over the months that there was indeed a serious problem with screen yields. So that second explanation could be true (although even if it is 50% sounds pretty high as a breakage rate).

Obviously, we’re not going to get told which of these stories is true in the accounts. But we might be able to divine it. If the value of work in progress (or stocks, components) has risen strongly then the first story is more likely to be true. Demand isn’t as high as Apple thought it would be and so it has over-ordered on parts. If the value of stocks or work in progress has fallen (obviously, both need to be measured as a portion of sales, not just as simple levels) then the second answer becomes more likely.

I most certainly don’t insist that I’m right about the above. But I do think it will be something interesting to look for. The reduction in parts orders: is it because Apple was wrong about demand? Or because of greater yield? The answer to that will tell us much about what Apple’s next quarter results are going to be like and we might be able to divine which from this quarter’s results.

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